The 3 Biggest Bargains I'm Watching Now

Like most investors, I keep a watchlist. And that watchlist has four columns. Column 1 is a list of stocks I would like to own. Column 2 is a list of the prices at which I would like to own said stocks. Column 3 is the current price of those same stocks. And Column 4 calculates the percentage difference between Column 2 and Column 3. The list is sorted by Column 4, with the stock at the top of the list being the one where the current price is the farthest below the price at which I would like to own it.

So … want to get a free sneak peek at my watch list?

Don't blink
Based on prices from midday yesterday, here are the three biggest bargains I'm watching now.

Stock

Delta to Fair Value

Sterlite Industries (NYSE: SLT  ) 57.4%
Yongye International (Nasdaq: YONG  ) 43.7%
Coca-Cola Hellenic (NYSE: CCH  ) 34.2%

Source: Author's opinion, with full awareness of false precision.

And here's why you might consider watching each one of these stocks as well.

Sterlite Industries
If you've ever lived or traveled in India, then you know India needs to greatly improve its infrastructure if the country is to achieve its economic growth potential. And that's infrastructure across the board -- roads, rails, power, water, you name it -- India needs more and better of it. This is why there's such a significant market opportunity for Sterlite Industries, India's largest producer of industrial metals such as copper, aluminum, and zinc.

Despite this compelling combination of market opportunity and industry position, Sterlite is down almost 35% this year, compared with just a 15% decline for the Indian index, with investors concerned that falling commodities prices could send the company's recently improving profitability spiraling back downward.

That could very well happen, given the risk for another global downturn, but Sterlite, like India, is a long-term story. So long as the company's long-term sales growth tracks India's GDP growth and the company settles out in the midpoint of historical profitability, I estimate that the stock is worth $17 per share. That's a long way from today’s $10 stock price, making Sterlite an inexpensive way to gain exposure to one of the world's fastest-growing economies.

Yongye International
Like many small, U.S.-listed Chinese companies, plant-nutrient maker Yongye International has had to answer its share of questions about its accounting and corporate governance -- questions that have weighed on the stock despite the fact that the company has nearly doubled sales and operating income over the past year. And while our Global Gains research team has visited the company, talked with its customers, and independently verified points of sale for the company's product, there's now another reason to believe Yongye is actually the growth company it says it is.

Following a reportedly $1 million due-diligence effort, U.S. investment bank Morgan Stanley (NYSE: MS  ) invested $50 million in Yongye through convertible bonds that, admittedly, come with myriad protections and preferential terms. Interestingly, however, Morgan Stanley does not appear satisfied with that $50 million exposure. The team there has also been buying up common shares on the open market and, following a nearly $2 million purchase at $5.9257 on Sept. 8, now beneficially owns well more than 10% of the company. Put that stake together with the more than 20% of the company owned by insiders and other large shareholders, and a going private transaction, such as one proposed by Bain Capital for China Fire & Security Group (Nasdaq: CFSG  ) , does not start to look out of the question.

If that happens, shareholders will benefit from a near-term price increase. If it doesn't, then you own a stake in a long-term growth story that Morgan Stanley can't seem to get enough of.

Coca-Cola Hellenic
I'm only half-kidding when I say that Coca-Cola Hellenic's stock would go up 10% to 20% if it simply changed its name to Coca-Cola Russia and Nigeria. This Coca-Cola bottler, the second-largest in the world by volume, has wrongly been lumped in by investors with the rest of the European contagion and has seen its stock sell off sharply as a result. Whether that's because of the name or because the company does have exposure to Greece, Italy, and Ireland, is almost irrelevant. Long-term investors should be focused on the fact the CCH controls two of Coke's most exciting emerging markets: Russia and Nigeria. Together, those markets have a population roughly that of the United States, but with per capita Coca-Cola consumption that's one-half to one-quarter of what it is globally.

Although CCH is not without challenges, including the need to spend on distribution infrastructure and handle rising commodity costs, the market is dramatically underestimating the sales-growth potential here. If you believe Russians and Nigerians will eventually drink as much Coke as the rest of the world, the stock is worth $25 per share. That's a bargain when you consider that Coca-Cola (NYSE: KO  ) is now trading well ahead of my estimated value on the strength of sales growth in emerging markets just like Russia and Nigeria.

Tim Hanson is the Fool's lead international advisor and co-advisor of Motley Fool Global Gains. Get Tim's top global stock picks by joining Motley Fool Global Gains. Tim's "Global View" column appears every Thursday on Fool.com.

Tim owns shares of Yongye International, and his spouse owns shares of Coca-Cola. The Motley Fool owns shares of Yongye International and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Sterlite Industries, Coca-Cola, and Yongye International. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (43)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 22, 2011, at 4:46 PM, snommis69 wrote:

    The link for Coca-Cola Helenic goes to Choice Hotels.

  • Report this Comment On September 22, 2011, at 4:47 PM, snommis69 wrote:

    Should be CCH, I believe.

  • Report this Comment On September 22, 2011, at 10:01 PM, skypilot2005 wrote:

    Tim,

    I don't know about investing in a Chinese company (Yongye). I've had 3 experiences over the last two years. All bad. I lost "pocket change" but, I guess I was lucky.

    The Chinese business laws or business culture seem to be lacking. I see Morgan Stanley is trying to protect itself but, what if they change "the rules"?

    I am not a stock holder but, Yahoo's recent experience in China put up a big caution flag for me.

    Yes, China has great potential. It also has great potential to "pick your pocket".

    Too many other solid countries with great opportunities, in my opinion.

    Anyway, thanks for the article.

    Sky Pilot

  • Report this Comment On September 22, 2011, at 10:29 PM, TicoHombre wrote:

    Sky Pilot: Good points and shared experiences. I think China's for traders not investors. Can't trust the market there.

  • Report this Comment On September 23, 2011, at 10:38 AM, GordonsGecko wrote:

    Now I want a coke...

  • Report this Comment On September 23, 2011, at 11:22 AM, ldkoehler wrote:

    YONG is an interesting opportunity.

    YONG's current stock price of ~$4.82 implies that the company's cash flows will decrease by 70% permanently. That's an extremely low hurdle for a YONG to beat, especially with an ROIC of 35% for the last 2 years.

    Of course this relies on the accuracy of YONG's financial data.

    I understand Morgan Stanley and others desire to do more research on the company. If YONG is real, it's a fantastic investment opportunity. Expectations for YONG are so low, that any improvement in the business or increased trust in the company's results can means majors gains in the stock price.

    Expectations investing is powerful tool to understand the performance

    requirements embedded in stock prices. If you want more info on this concept,

    go here:

    http://blog.newconstructs.com/2010/05/19/how-to-make-money-p...

  • Report this Comment On September 23, 2011, at 4:22 PM, teomax12 wrote:

    The sentence "Put that stake together with the more than 20% of the company owned by insiders... does not start to look out of the question" doesn't make sense. What doesn't start to look out of the question?

  • Report this Comment On September 23, 2011, at 4:48 PM, TruffelPig wrote:

    I do not get why anyone would consider YONG with all the questions around it. Buy UAN, get a fat yield and be happy. Or any other fertilizer stock for that matter from POT over MOS to CF and THN - they are all better than YONG which is 100% speculative. Reverse merger anyone?

  • Report this Comment On October 04, 2011, at 12:13 AM, CROIC wrote:

    teomax

    "a going private transaction"

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